DE—INDUSTRIALIZE SERVICE FOR QUALITY · Take, for example, Benihana restaurants. The WHAT, that...

"DE—INDUSTRIALIZE SERVICE

FOR QUALITY"

byJames TEBOUL*

N° 88 / 21

* James TEBOUL, Affiliate Professor of Production and OperationsManagement, INSEAD, Fontainebleau, France

Director of Publication :

Charles WYPLOSZ, Associate Deanfor Research and Development

Printed at INSEAD,Fontainebleau, France

ABSTRACT

DE-INDUSTRIALIZE SERVICE FOR QUALITY

James TEBOUL

There is no precise frontier between a service and an industrial product.This appears clearly with the operational definition of services: interfaceand support or front office and back office. The larger the interface, thepurer the service, the smaller the interface, the more industrial theservice.

But, the interface is difficult to deal with because of interactions betweenclients, employees and technology. Hence the tendency to "industrializeservices", to standardize the interface, define precise requirements andtransfer some of it in the support. In that case, quality means conformanceto requirements and a zero defect policy is readily specified if notimplemented.

However, it then becomes very difficult for the firm following this path todifferentiate itself from competition and to satisfy the evolutive needs ofthe customer. We recommend avoiding this vicious circle and taking theopposite stand. The interface, when used well, can give quality a boost,and a long term approach to quality must take into consideration an adequateuse of the multiple interactions between customers, employees and technologyin order to satisfy the client. Hence, enlarging the interface and givingit proper attention is not more costly if quality is adequately planned andbuilt into the process and if participation of customers and automation isjudiciously resorted to.


by

James TEBOUL

European Institute of Business Administration (INSEAD)Fontainebleau, France

March 1988

(Revised version of W.P. N° 88/03)


James TEBOUL

In recent years, we have witnessed a lively interest in services and therehas been a move towards the industrialisation of services to improve theirproductivity. The main thrust has been "Why don't we apply the methods ofproductivity improvement that have already proved themselves throughout theindustrial world?" And by way of proof we have the famous example of fastfood restaurants such as McDonald's and Burger King in Levitt's article onthe Industrialisation of Services where "the same rational system ofdivision of labor and specialization is rigorously followed to producespeed, quality control, cleanliness, and low prices". (1)

At first sight, this approach to services seems to bear its fruit as itshows clear cost reductions with the standardisation of the service. Butthis can only be a short term approach as the motto is "productivity andcost reduction" and the centre of interest is less the service itself thanthe product delivered with the service.

It is my firm belief that there is another option, that in many casesservices should be de-industrialised in order to obtain both better qualityand customer satisfaction. And to prove this point, I would first like tomake the difference between a service and an industrial product very clear.

Making a product is starting from "raw material" and transforming it into afinal product. For example, you begin with a pig and you end up withsausages.

Delivering a service, on the other hand, is dealing directly with customersand transforming them from an initial state of non-satisfaction or need intoone of contentment. For example, "I'm starving" becomes "I feel great".

When you deliver a service, you essentially interact with a customer even ifyou actually give him something which has been prepared beforehand. Aservice should be considered as being made up of two systems: an interfaceand a support, a front office and a back office, the dining room in arestaurant and the kitchen. (3)

Figure 1 - Service Definition

SERVICE

ICUSTOMER

IINTERFACE SUPPORT

Up front service "Behind the scenes"in contact with support servicecustomer

FRONT OFFICE

BACK OFFICE

Now what makes a service really a service is the interface: the frontoffice, the dining room, and the actual difference between a service and amanufacturing facility is the size of the interface. Therefore whenindustrialising a service one should be careful not to over-simplify it, notto reduce the interface too much, not to concentrate attention only on the

Customer Needs

interactionequipment

interactiocustomer

interactionprocess

interactionemployees

- 2 -support. For the interface is a very specific system, with the followingcharacteristics.

Firstly, the customer is physically present in the interface. This impliesthat there may be a greater number of problems because the customer'sdemands do vary widely. Yet, at the same time, the customer is able toparticipate not only in the design of the service, but in production, or inquality control or even in the diffusion of the service. (5)

Secondly, in the interface, the service and the delivery process areinterdependent. One cannot exist without the other. Production andconsumption are simultaneous. In the classroom, the teaching and thelearning process go together. The customer has to be in the plane in orderto be transported. If he misses his plane, the service is lost. And thisis why we say services are immaterial. (6) (7)

Thirdly, when the customer is in the interface, he is visiting the factory--the place where the service is delivered. And the larger the interface, thelonger he stays and the more visible the service is.

Given the above characteristics of services, the natural question arises:What should be done with the interface? Should it be reduced? We'll askthe customer to telephone or to write instead of visiting. Should it bedeveloped? We'll spend more time with the customer. We'll enhance thepremises, the personnel will be more available.

The obvious short term answer is "Let's standardise it, let's reduce it".The advantages are cost reduction and conformity to well definedrequirements; but the clear drawback is the loss of differentiation andless customer satisfaction. And to make this last point clearer, we must goback to the definition of quality. Quality means satisfaction of the userand this can be seen in the diagram below where the customer needs arerepresented by a circle and the service offer by a square.

Figure 2 - Quality as perceived user satisfaction

Service Offer

Quality perceived customer satisfaction

Non valuefor customer

Company's A offer

Quality or customer satisfaction is the customer's perception of the serviceoffer, that is, the shaded area. And the perception of the customer in theinterface includes more than WHAT is delivered, it includes HOW it isdelivered. And the HOW is all the inter-actions of the customer with thepremises, with the machines, with the technology, with the employees andeven with the other customers. So then in order to give quality, to live upto the promise of an offer, thousands of details must be supervised as thecustomer perception is global. All elements of the WHAT and the HOWcontribute to this perception and you may even have transfers from oneelement to another to give a global perception of satisfaction.

Take, for example, Benihana restaurants. The WHAT, that is the food and therecipe, is very standardised but the HOW, that is the exotism, the show andthe enthusiasm of the chef makes the service more customized or specific orexotic and gives more value hence higher prices.

But what makes quality so very difficult to control is that one minormistake, one minus, can ruin the best offer and this non-conformity can be aserious drawback when a competitor offers defect free service. This is whymany companies opt for the reduction or the standardisation of theinterface. However the company that is offering the service does not standalone. There are competitors. And the competitor will try to do betterthan you. He will offer something more, something different to thecustomer. He will try to get what we call a competitive advantage, a plus.

Figure 3 - The Plus and Minus of Quality

Company's B offer

(-) Non conformity(+) Differentiation

Competitive Advantage

- 4 -

The problem with customers is that they vote everyday when they buy yourservice and what is important is WHAT makes the difference. Take, forexample, the airline industry. A ticket is a ticket is a ticket and whatmakes the difference is perhaps having more room in which to stretch outyour legs, or simply the steward or stewardess' smile. So the interface andthe quality of the service in the interface may provide that not-to-be-missed opportunity to keep one step ahead.

Controlling "minuses", those thousands of details better than anyone else isof utmost importance. And to find, "pluses", ways of differentiation notonly in what you give (the service itself) but in how you give it (thedelivery process) is equally important.

Now perhaps you are saying "Oh yes, what what about cost? Will thisenlarging and developing of the interface cost more? Will it cost a lot?"

I would now like to review some of the strategies that will increasecustomer satisfaction and will not increase the cost.

STRATEGY 1

Enhance the Interface to get that Competitive Advantage

This strategy will give greater importance to the interface. It may bephysically enlarged as in the Benihana restaurant example, where the size ofthe kitchen is reduced and that of the dining area is enlarged. There aretwo reasons for this:

1) The customer is served by the chef in the dining room and so the chefplays many roles--he cooks, he serves, he controls the length of themeal, he cleans up and he controls quality, he gives the show and statusto the customer.

2) The customer does not wait in a queue but he is invited to sit in alarge, comfortable bar where he is entertained while he has a drink ortwo.

And this policy of a larger interface is, in fact, less costly than aclassical restaurant of the same size.

Another example can be seen in certain supermarkets where the fish ispresented on a bed of ice instead of in a standardised plastic pack. Ittakes up more space this way and a qualified salesman is needed, but thecustomer's greater satisfaction and willingness to pay higher prices, whenhe has the impression he is buying freshly caught fish, compensate for thehigher costs.

When this strategy is followed, however, some problems do arise. Some ofthese come from the wide variety of customer needs and demands that mayexceed the capabilities of the service, but customers can be selected andprepared for the service offered.

- 5 -

This is the idea of fan clubs or of customer clubs where people who havealready experienced the service tell the newcomer what to expect and how tobehave. Shouldice Hospital, in Canada, for example, is a private clinicwhich specialises in hernia operations. The patient is first selected bymeans of a questionnaire and a medical examination, and then, when he getsto the hospital he meets with other patients who have already undergone theoperation and in this way he is directly prepared for his own operation.Later on, he may join an "old patients' club" and he will meet with themfrom time to time for dinner to revive the experience and even to diffuseit.

Along the same line of thought, the welcoming ceremony of the Club Med isvery important for preparing the future guests for their holiday experience.

Moreover, the customer is not passive and he can also be used to control thequality of his interaction with the employees and the evolution of theservice design.

There are two important advantages in this strategy other than thecompetitive advantage. Firstly, the barrier to entry as it is not as easyto copy successful personal interactions as it is to copy physical goods.Compare the special, supposedly exotic atmosphere of Benihana to that ofsome standardised hamburger eating places. Secondly, the importance of theinteraction experienced in the interface: the memory of this experience maybe more significant than any other means of communication, and by word-of-mouth a good experience will be passed on more effectively than byadvertising.

STRATEGY 2

Keep interface but reduce its cost

Here are a few examples of how to do this:

1) As already mentioned, selection and training of customers.

2) Shift demand when the capacity is insufficient--for example, on and offseason advantages; giving appointments to avoid queueing.

3) Simplify the interface and focus it on a specific group of customers whohave similar needs.

4) Encourage customer participation in the actual production and delivery ofthe service, i.e. self-service of all sorts. We still have the interfacebut the customer is doing part of the job. As long as he has the feelingthat he is saving time, using his knowledge and getting what he wants, heis better off than with a mail order system where interface is reduced tominimum.

- 6 -

STRATEGY 3

In any case, give the promised quality and build it into the interface

Quality, that is, customer satisfaction, has two aspects: a positive aspect--differentiation and the competitive advantage; a negative aspect--a lackof conformity to requirements or expectations. It is then very important tokeep your promise:

a) Planning Quality. It is essential at the design stage to anticipate potential problems and to build quality into the system. For thispurpose different tools are available such as value analysis, flowcharting, project reviews, capability analysis, selection and trainingof employees. Another essential aspect is to check the coherence of theoffer. We have already referred to the perception of the customer asbeing global so it is very important to check that all aspects of theservice are coherent and give a global positive impression. Investmentin prevention is much less costly than corrective action. This isespecially true in services where it is difficult, if not impossible, tocorrect a bad service. You will not easily be forgiven if your customeris ill after a meal. It is difficult to console a customer when hislonged-for and much needed holiday has been ruined by bad organisation.

b) Quality Measurement and Control. While delivering the service, qualitycan be controlled by the employees themselves, the customers, or even bypeers. After-delivery quality must be reviewed by audits and consumersurveys (preferable to complaints analysis).

c) Quality Improvement. Needs of customers change, standards improve underthe pressure of competition, thus quality must improve on a continuousbasis. One must resort to quality improvement teams and programmes, aproject by project improvement approach.

CONCLUSION

Take any book on management and open it. What message will you find? Thecustomer, the customer, the customer is king, tune in to the customer,cherish your customer. But in the interface, the customer is right there,physically accessible. Why deny yourself such an opportunity?

Enlarging the interface, investing in the interface, selecting and trainingthe customer, having him participate, selecting and training the labourforce for the interaction, may seem more complicated and more expensive inthe short term, but when we look at the total system, the long termpositioning of the company, and the opportunity to build barriers to entry,these strategies become a must.

Enhance your interface when it gets to be a competitive advantage. Keep itbut reduce its cost in order not to lose ground. Build your promisedquality into it by anticipating problems or needs and by giving coherentservice. And if you decide to industrialize part of the service, choose itcarefully. It's a part that the customer accepts not to perceive directly.

REFERENCES

(1) Theodore Levitt, The Industrialization of Service, Harvard BusinessReview, September-October 1976.

(2) Theodore Levitt, Production-Line Approach to Service, Harvard BusinessReview, September -October 1972.

(3) J. Teboul & V. Malleret, Towards an Operational Definition of Services,1986

(4) Richard B. Chase, Decoupling Operations in Service Production Systems,14th Annual Meeting American Institute for Decision Sciences, SanFrancisco, November 1982.

(5) P. Eigler, E. Langeard, Servuction, McGraw-Hill.

(6) R. Normann, Service Management: Strategy and Leadership in Service Business, John Wiley & Sons.

(7) W. E. Sasser, R. P. Olsen, D. D. Wyckoff, Management of Service Operations: Texts, Cases and Readings, Boston 1978.

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"Individual bias in Judgements of confidence",

March 1988.

"Portfolio selection by mutual funds, anequilibrium model", March 1988.

DE—INDUSTRIALIZE SERVICE FOR QUALITY · Take, for example, Benihana restaurants. The WHAT, that...

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Transcript of DE—INDUSTRIALIZE SERVICE FOR QUALITY · Take, for example, Benihana restaurants. The WHAT, that...